淡水河谷 (VALE) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss the third quarter 2014 results.

(Operator Instructions)

As a reminder, this conference is being recorded and the recording will be available on the Company's website at vale.com, at the "Investors" link. The replay of this conference call will be available by phone until November 5, 2014, on (55 11) 3193-1012, access code 5668345#. This conference call and the slide presentation are being transmitted via internet as well, also through the Company's website.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks, and other factors.

With us today are Mr. Murilo Ferreira, Chief Executive Officer (CEO); Mr. Luciano Siani, Executive Officer of Finance and Investor Relations (CFO); Mr. Jose Carlos Martins, Executive Officer of Ferrous and Strategy; Mr. Roger Downey, Executive Officer of Fertilizers and Coal Operations and Marketing; Mr. Galib Chaim, Executive Officer of Capital Project Implementation; Mr. Humberto Freitas, Executive Officer of Logistics and Mineral Research; Mr. Peter Poppinga, Executive Officer of Base Metals and Information Technology; and Mr. Clovis Torres, General Counsel and Chief Compliance Officer.

First, Mr. Murilo Ferreira will proceed to the presentation, and after that we will open for question and answers. It's now my pleasure to turn the call over to Mr. Murilo Ferreira. Sir, you may now begin.

Ladies and gentlemen, welcome to our webcast and conference call. Thank you for join us to discuss our results.

First of all, I'm pleased to report that Vale delivered a strong operational performance in the third quarter, with record output in iron ore, copper, and excellent production of nickel.

Once again, we achieved savings in costs and expenses, of over $500 million compared with the first nine months of last year.

This quarter, we posted EBITDA of $3 billion, reflecting lower iron ore prices.

We saw a drop in the net income, of about $2.90 billion in the quarter, mainly driven by a non-cash impact of the depreciation of the Brazilian real against US dollar.

Capital expenditure came at $3.2 billion in the quarter and $8.2 billion in the first nine months of the year, which is $2.2 billion lower than the capital expenditure in the first nine months of 2013.

Overall, our balance sheet continued to be healthy, with low leverage, high (technical difficulty) coverage, low debt maturity, and also low cost of debt. Net debt decreased by almost $2.2 billion since the end of June this year.

(inaudible) iron ore production reached a record; sales volume remained stable; and our flagship area, ferrous minerals, suffered most from the reduction in sales prices, which dropped to the overall EBITDA decrease of $1.1 billion versus the second quarter of the year.

Inventory increased in the quarter, mainly to the blockage in the Carajas railway and to the commercial strategy.

There was also an increase in cash costs, to $24.70 per tonne, mainly to some non-recurrent impacts of higher maintenance and logistic costs in preparation for an increase in production volumes in the coming quarters and for the processing during the quarter of the outstanding invoices related to the introduction of the new system.

Iron ore cash costs will decrease even further with the production increase, diluted fixed costs, and our internal cost reduction initiatives. A depreciated Brazilian real versus the dollar will also contributed the reduction of our cash costs.

Now, for base metals, I'm pleased to inform that base metals business was yet again a success story, with another excellent contribution to our results due to the increased nickel production and a record copper output.

Base metals EBITDA increased almost by 30%, to $781 million, [in] the third quarter 2014 versus second quarter 2014. Looking forward, the ramp-up of the ongoing projects reinforces our confidence that the base metals segment is set to achieve its EBITDA target of $4 billion to $6 billion.

Now, to look at coal and fertilizers, (technical difficulty).

Ladies and gentlemen, please hold. Vale's audio conference will resume shortly. Thank you.

Mr. Murilo, you may proceed.

Thank you very much. We apologize.

Now, to look at coal and fertilizers, with coal we continue to focus on reducing costs, increase profitability, and developing milestone projects that will secure our shareholder value in the future.

We continue our investment at Moatize and Nacala, with big physical progress. Moatize II achieved 70% and Nacala is close to 74% physical progress.

With the fertilizer business, we continue to make progress, with adjusted EBITDA increasing by (sic - see press release, "to") almost $100 million in the quarter, while production of phosphate rock reached 2.2 million, a record for a third quarter.

We continue to discuss partnership opportunities with a view to maximizing our strategy in the business.

As we head towards the end of 2014, we recognize our many achievements. Cost and expense have been reduced over the last two years. Production volumes have been increased across all business segments with the completion and ramping-up of projects; in particularly, the base metals segment has started to bear the fruit of all of our restructuring and investment efforts.

We pay attention in the challenges that face us, including global change in the supply and demand for iron ore, and knowledge that the investment commitments ahead of us in 2015.

We remain focused on our cash flow generation and are further exploring divestment opportunities and reinforcing CapEx and cost-cutting initiatives to support our free cash flow.

Now, our team will be happy to answer your questions. Thank you very much.

(Operator Instructions) Rodolfo Angele, JPMorgan.

I think the bulk of the questions I had specifically to the earnings were answered in the other call. So, I just wanted to ask, first, a question on looking forward in terms of potential divestitures. Outside of the assets in the coal side, is there an opportunity that you can discuss at this point, to help on the free cash flow story? So, that's the first question.

And my second question is a very simple one, but it's a question that I was asked a lot yesterday, but there's only one person that I can ask, which is Murilo. The press has been reporting that you were considered for the government. So, if you could enlighten us on what's your position there?

In fact, I didn't receive any invitation or even been consulted to be a minister in the new government. I'm very focused into working. The market will know that now you are facing big changes in the mining industry and even in the oil industry as well. And I am very focused, myself and the whole team in Vale, to bring a good future, a gorgeous future, for our Company. And we are extremely devoted to deliver our projects on time and below budget and to increase the efficiency of the Company.

Regarding divestments, I think that we have an opportunity in bauxite. We having a stake in MRN. And I believe that we will be able, now that the bauxite market is much better --. The [ore bin] in Indonesia is working very well, and I think that we have an opportunity to look for a divestment in MRN.

Carlos de Alba, Morgan Stanley.

Just a couple of questions. The first one has to do with dividends and net debt. Clearly, your free cash flow is going to be tight, given what is happening to commodity prices, particularly iron ore. So, Murilo, when the management of the Company presents to the Board of Directors its recommendation for dividends, how do you balance cutting dividends, potentially, or raising net debt in the future? If you can tell us how do you approach as CEO this challenge, that would be useful.

And the second question has to do with the sharp increase that we saw in maintenance costs quarter on quarter. Excluding the effects of volumes and FX, they increased about $330 million. You mention in the press release that that was related to iron ore and pellets primarily, as well as base metals. How do you see this line, going forward? I suspect that it's going to decline, but if you can give us an estimate of how much do you think this number will decline, that would be also useful for modeling purposes.

What I can say that we will continue with our policy to be extremely prudent in the leverage of the Company. We have now just a few projects; as far as I know, six projects to be finalized, which is a great achievement for us. In the beginning, it was more than 100.

And then, we are very focused in delivering [mainly] S11D, the [Itabiritos] project. I think that's just the last one for next year.

And Moatize, I think that can be a big surprise for most of the investors. I believe that the amount of money that will bring is extremely relevant for us, considering mainly 2015 and 2016.

Right after the implementation of S11D, I believe that we have enough options, and the question will be about investment in world-class projects. Up to there, mainly 2015/2016, I think that the first decision is regarding the amount of money that we will receive regarding the Moatize project and the Nacala corridor. Then, we have options. We have many options that could be considered in the near future in case of if you need.

I wanted to continue a Company with high-yield dividend. I think that it's very interest for us, can bring a good motivation to our shareholders. I think that as we have to announce this transaction, I prefer to finalize my answer and validate New York and London in the beginning of December.

Luciano, go ahead.

Carlos, I believe you are referring to the comparison between the third quarter of 2014 and the third quarter of 2013, because if you compare to the previous quarter, to the second quarter, the increase in maintenance costs was much smaller, and it was mainly explained by the preparation that we mentioned of some trucks for the increase in production in iron ore.

If you look third quarter 2014 against third quarter of 2013, there are some effects that impacted only the third quarter of 2014. For instance, we have Thompson right now in a planned maintenance that we didn't have. We didn't have any nickel plants in planned shutdowns in third quarter of 2013. As we mentioned, we've been embarking in a higher maintenance cost to improve the asset integrity in fertilizer; this is something that we have emphasized this year.

So, we believe that a better way to look at maintenance cost is to consider the second quarter of this year figures as (technical difficulty) level should be. And the comparisons to one year ago, I gave you some color about why these are higher. But looking forward, I would say the numbers of the second quarter are more representative.

Leonardo Correa, BTG Pactual.

My first question is regarding iron ore growth and S11D. Just wanted to understand with you if there's any iron ore pricing level that would potentially slow up the ramp-up of the project? I'm just asking because the project is coming on stream by the end of 2016 and 2017, and by then, supply-demand models would potentially forecast a bigger surplus in the market.

So, just wanted to see if there's any iron ore pricing level that would potentially reduce a bit the pace of expansions, even though I acknowledge that this is a very competitive and very low-cost project which makes sense basically in any environment. So, that's my first question.

And the second question is regarding the strategy with your non-ferrous division. Just wanted to get some additional color on a potential spinoff? What are the options for your non-ferrous division? And moving into a smaller aspect of it, VNC Goro, how comfortable are you with the sustainability of this asset? And is there any time frame, really, to consider a sale or a potential shutdown of this asset? We saw the numbers in the quarter coming in still negative; negative EBITDA of around $100 million.

Those are the two questions.

Martins?

As far as S11D is concerned, I think the lower the price, more compelling is to bring you this project in operation because it's low cost and high quality. So, there is no way that we are going to reduce the pace of investment in S11D. We believe that it's a low-cost, high-quality and could [substitute] other productions outside Vale or even inside Vale that have a higher cost and lower quality. So, to be frank, we do not see any chance of slowing down this project at any price of iron ore.

Regarding non-ferrous, I would like to explain more deeply about some options that could be considering during the Vale Day, Leonardo. What we have in mind that we have plenty of opportunities. Now, most of the -- we have the integrity of the assets in [Subrey] and Thompson in a very advanced way. We have the long harbor working. We have the [Totten] mining doing very well. And many opportunities regarding the base metal that we intend to present in the Vale Day.

Regarding Goro, please Peter Poppinga, could you explain what's happening with our project in New Caledonia?

Regarding our VNC operation, it's an ongoing story. As you know, we have the certainty now that the process works, and it's proven. The technology is working. We need to increase -- to improve availability of the operations and constant operations, and of course improve the stakeholder relations where we had some problems. You know that we had (technical difficulty).

In March 14 this year, we had reached 60% of capacity of the plant. But then came the acid spill. By the way, there was -- just to remind everybody -- there was no ocean damage. It was all in a small creek. But it triggered a social unrest and (technical difficulty), because these social problems in certain parts of New Caledonia, they go well beyond the VNC events.

But that interrupted everything, and in Q3 we ramped up again. You saw that we produced around 4,000 tonnes. If you take September only, we produced almost 2.5 kilotons, which multiplied by 12 gives you around 50% capacity. So, we are back on track today, surpassing again the 50% capacity hurdle. And we are now currently with two (inaudible) constantly for the last quarter of the year, planning to make a step-change well beyond before and it's probably going to be around two-thirds of capacity.

And so, that's the thing. It's going up slowly, interrupted by the social unrest. We produced 15,000 in 2013; that was last year. This year, it will be well over 20,000, in spite of the three-month shutdown. And next year, it will be well above 30,000, and this will lead us to a cash breakeven situation at VNC. And then, we will decide along the year how we are going to pursue this asset in the future.

Alex Hacking, Citi.

The first question, I guess, is for Roger, if it's okay? Could you remind us of the sales that you expect from Moatize in 2015 and 2016 and what kind of EBITDA per tonne you think you could achieve at the current coal prices?

And then, second question will be iron ore. Murilo, you mentioned that the build in inventory was partly a commercial strategy. Maybe you could describe your thought process behind, I guess, not selling some material and if you have any concerns that putting this material into the market in the fourth quarter could negatively impact the price?

Kicking off with coal, you asked on our operations in Moatize and how competitive they are, essentially. Obviously, we have to look at Moatize when it's a steady-state operation, when we're fully ramped up.

According to our schedule, we should reach a 22 million-tonne run rate on the railway by the end of 2016. That's when we'll be able to really fully dilute all of our costs there and both the mine and the railway will be fully ramped up to that sort of scale.

At that level, at that stage, with a tariff of somewhere in the order of $20 to $25 on the railway, we should be comfortably in the first quarter out of the cost curve. So, even if the current coal prices maintain at these levels through the next couple of years or even into the end of the decade, Moatize will certainly be one of the lowest-cost coal producers in the world.

And, Martins, regarding [development of] the inventory?

I don't believe it will be -- you will have any important impact because you are talking about a market that will buy around 300 million tonnes of iron ore in the last quarter. So, 9 million tonnes is not a big volume that could influence the price. So, in my view, the impact, if any, it will be minimal.

Even because the first -- the second 3 million, you --.

Yes, it's already done.

Yes. It was [precisely] in the first week of October.

Amos Fletcher, Barclays.

Thanks for the question; I had a couple to ask. Firstly, on iron ores, I just wanted to clarify whether Vale will potentially respond to the current low iron ore price environment by taking any tonnages offline? For example, you've got your ROM tonnes which are getting quite low realized prices. The mid-western operations are quite high cost as well. So, I just wanted to ask what sort of volumes could we be talking about here and what sort of price levels could you potentially be induced to take some capacity offline? That's my only question.

For the time being, we don't have any tonnage that we could take out of the market without reducing our cash generation. We have some volumes in the [Colomby] area, which we have some difficulties with them, but we are managing to get breakeven on these volumes.

So, we do not intend for the time being to reduce any volumes from our sales. We keep monitoring all our lines of products to see if you have problem with any of them. But for the time being, there is no reasons for taking volumes out of the market.

Martins, if you allow me just to complement, the Run of Mine which was mentioned, actually it showed a lower price because we don't incur any of the processing costs which are done by [Samarcu]. And then, we fully capture the additional margin as a shareholder of Samarcu on these volumes.

Thiago Lofiego, Merrill Lynch.

I have two questions. First one, if you could give us an update on the tax dispute in Brazil? So, what are the next steps we should watch and what's the likelihood you attribute to the reversal of the payments already done?

And the second question is on your freight strategy. If you could give us some color on how many more ships do you have in your fleet and that could be subject to the future lease agreements? And what's the timing for that to happen?

Clovis Torres, please?

We have as expected an appeal from the tax authorities to the supreme court. This was filed about a month ago. There's no reply or acceptance yet from the supreme court. We still believe that we're not dealing with constitutional matters and therefore the appeal should be refused. And as such, we would have a final decision from the superior court, that's right under the supreme court. So, that's what we have at the moment.

Once we have that final decision or that means that when the supreme court refuses to hear the appeal, we will then start talks with the Ministry of Finance to see how we would go forward and recover amounts already paid and would make a decision on stopping future payments.

Martins?

As far as the ships is concerned, we have now 35 ships under operation, and we are negotiating in order to sell some of them to some shipowners in China. We have two agreements already in place. And our idea is moving step by step on this regard and also start ordering more ships, because considering the volumes we are going to increase in the next three years, we need another -- more ships to move it to China.

Today in fact, we have, Martins, 31 in place; [and 19] is our own fleet. And we intend, as Martins said, to increase our fleet through an agreement with third parties in terms of the ownership of the ships and for sure having a long-term contract with us.

[Renny Cloweg], Deutsche Bank.

Murilo, it sounds from your clarification earlier on that we're stuck with you a little bit longer.

Just two questions really. One, in terms of Leonardo's point earlier on about the displacement of tonnage as a result of S11D, Martins, I presume you're referring to potentially displacing volumes in the south and southeast system in terms of the volumes that may need some CapEx in terms of upgrading the processing capacities there?

And then, the second question is on Salobo, just in terms of the ramp-up profile there, could you give us some color about how that looks going into 2015/2016?

Martins, and then Peter Poppinga about Salobo.

As far as the splits [some quantative], our idea is to displace competitors' quantities. So, it's not our idea to displace our quantities, but that will depend on price. The very fact is that, on average, our cost is very well competitive in the market. So, we believe that many others competitors will needed to exit the market before we needed to reduce production in southeast or southern systems. That's our appraisal in this moment.

Peter?

In terms of Salobo ramp-up, it's actually going very well. As you know, we have two lines. One, the first line, is around or maybe over 80% of capacity already. And the second line came in [mid] of this year, and it's ramping up well and now we have -- we can say it's around one-third of the capacity. And if we look into 2015, I would expect that both lines would be on full capacity by the end of 2015.

And so, just reminding you again that this will be a very big boost to our base metals division, because if you take a price, a round copper price of [$7,000], you deduct our OpEx after byproducts of, say, a little more than [$,2000], it leaves [$55,000] margin times 200,000 tonnes, gives you the [$1 billion]. So, now we have no [inflows] and we are very happy.

Renny, thank you very much for your comment regarding staying in Vale. I really appreciate it and it's a much vision for us to continue working to work hard in order to bring good results and new projects on time and under budget. Thank you very much for your comment.

Andreas Bokkenheuser, UBS.

Just a quick question from me. It's really more of a clarification. Obviously, there's a bit of excitement in regards to the potential asset sales of the Mozambique coal assets, some of the [Vale assets], and so on.

Going back in time, I seem to recall all of these assets were part of Vale's core business. And effectively, by selling them, even though it does raise cash up front and it does reduce your CapEx, it also removes future cash flows from your discounted cash flow valuation, at least in the eyes of an analyst, and that effectively tends to reduce your valuation as well, depending on the price you're selling at, of course.

So, I'm just trying to understand. Can you give me a little bit more clarity about why investors and shareholders should get excited about asset sales at this point?

Roger Downey will explain you our strategy regarding selling some assets in Mozambique.

Thanks for the question; a very good one, indeed. The strategy is unchanged, and we are still seeing ourselves as a very promising and profitable coal supplier in the future. Mozambique is a very promising place to be in terms of coal, and the Moatize project remains a core asset.

The transaction that we announced last year at the Vale Day in New York basically entails a sell-down and a shared control of our stake in the railway, and that's what it's centered around. Associated with that, we might sell a -- as Murilo mentioned it earlier and we did publicly disclose last year -- a target of about [15%] to 25% in the mine.

I remind you, we make money at the mine. We don't really make the money on the railway. The railway, we look at it as basically if we can get the tariff as close to costs as possible, that's where we should be.

So, the concept -- and trying to answer your question as best as I can -- is to retain as much as we can of what we really are good at and where we do make the money, which is the coal mine, and still keep the railway, servicing and having integrated operation, but using that to sell down to free up some capital right now.

And obviously, that also brings us an opportunity. As you know, the terms of concession of the railway in Mozambique are that it is an open access railway, open not to just other coal producers but also other cargos. So, bringing in a partner that can actually develop different businesses and bring in different cargos to the business, it might even reduce our tariffs, going forward. So, in the future, this sounds like a transaction that is very closely connected with our strategy.

We have a strategy and we want to increase the return on capital and return on equity for our shareholders. That's why you should be excited about.

Whenever we invest, for instance, in ships -- and they are still part of our core strategy -- the core strategy is not to own the ship; it's rather to make sure that they are available at competitive rates to transport the ore from Brazil to Asia.

But owning a ship is basically a business where you break even on your cost of capital, because it's an asset that you hold; it doesn't have upside in terms of returns. You basically when you own them, you take out the economic costs -- if you pass on to someone else which have a competitive economic cost, then you're actually raising the return on capital of the remaining assets of the company because you're pretty much breaking even on the ships.

And by the way, the Chinese companies which we are dealing with, they have means of financing the ships at very, very competitive rates. So, therefore, the economic cost for us will be cheap, as well.

So, therefore we want to be concentrating on the assets in which we believe we can generate returns which are above the cost of capital, and usually that's more difficult in logistics assets. And if, for instance, you take, for example, the VLI transaction, that was basically a similar idea. We did that because we understood that the value creation was better performed outside the balance sheet of Vale than within Vale.

But on the core mining assets, the goal is to raise return on capital and return on equity.

Tony Rizzuto, Cowen and Co.

I've got two questions. First, on Indonesia, you were able to secure pretty quickly an extension to your contract of work. Other international miners are still negotiating. And I'm curious what do you attribute your level of success to?

Second, iron ore market. And I'm wondering --? Both BHP and Rio Tinto recently have provided their view of the Chinese production capability and the complexion of that supply. I'm wondering how you view the Chinese iron ore production and what level is being displaced and how much of that production may indeed be more sticky to exit the market?

First of all, we have spent more than two years on this negotiation, because the negotiation was established in the Indonesia law in 2009. And myself, I had the chance to visit there three times in order to discuss some key issues regarding this agreement. But Peter Poppinga briefly can explain the full context of our agreement in Indonesia.

This is actually some very exciting news for us. And Murilo, I think it's actually three years that we [are negotiating]. The timing now is just because it was (technical difficulty).

And we can't be compared to the copper guys, because we have a completely different situation. We already have [a smelter in] Indonesia, whereas these guys, they don't have that. So, it's a completely different (technical difficulty).

But we secured this amendment of the [scope] of work with the new mining law. And so, essentially we reduced the area from 190,000 to 118,000 hectares (technical difficulty). By the way, hectares doesn't mean reserves, and that's what some people don't understand, that we had lots of land (technical difficulty), where absolutely no ore was located or where we have other things, like (technical difficulty), or it was being mined out from some (technical difficulty). So, this doesn't mean a lot.

And the second step, after the year 2025 we have agreed to reduce further the 118,000, to the 25,000 hectares required (technical difficulty) the mining law. And exactly our (technical difficulty) of course, and over 90% of the resources and reserves are in those [25,000] hectares. This (technical difficulty) time until 2025 to select those areas, plus we will have some project areas where we can keep them where we use these for our mining, for our project.

So, those reserves we will have enough, more than enough, much more than enough then in order to do our brownfield expansion plans we have for Indonesia.

Then, we agreed to increase the royalties to 2%, depending on nickel price. And if the nickel price goes over $21,000, we agreed for a 3% which is, of course, [higher than we have] today, but it's still reasonable if you compare to the average in the world.

And we also (technical difficulty) divestment within five years, of another 20% to Indonesian participants. And this is done by inflation-adjusted book value which is, more or less, the fair value we have. So, PTVI in the future, after five years, will have a 40% public float.

What did we get in return? I think this very important to state -- we are now in compliance with the mining law and also with our [contract] undertakings, which we have renegotiated. And we have now enough for, like I said, our expansion plans, which may go to 115,000 tonnes in the future, brownfield expansion only. Nothing greenfield.

And we also secured, which is the most important thing, we secured an extension of our [contract of work] until the year 2045.

So, I think pretty much that's it. It was a long process, three years, but we are very happy, and I think it was a different process than the copper side, for the reasons I explained.

And it's worth it to say that the agreement was reached with the old government and we had a chance to discuss with the new government, as well.

Martins?

As I explained before, we believe that more than 50 million tonnes of ore produced outside China was already displaced, between 50 million and 70 million. Considering the low growth of the market and the increase in capacity, we believe by year-end near 120 million tonnes will have to be displaced from the market.

In China, it seems that you have some resilience, but we believe that near 100 million tonnes of China production is already [below-water] level. So, it's a question of timing, when that volume will be displaced.

Another point is some of this resilience is because you have an important part of Chinese iron ore production that does not go directly to [center machines] or to blast furnace. They go to pelletizing plants. They are transformed in pellets and then compete with the [center feed or lump] or pellets from outside. So, this is not displaced immediately, because those companies in China that have pelletizing plants needed to find another source of pellet feed before changing.

And then, you can see that this ore in China, [inside China], is [sold at a] better price than imported ore, around $10 to $15 above imported ore. But that's because of this pelletizing capacity that you have in China. It will take much more time to displace it.

So, I believe that, long term, China local production will be around 200 million against the 350 million that they had been producing before this low-price era started.

Paul Massoud, Stifel.

I just had a quick clarification. On the copper realized price during the quarter, a back-of-the-envelope calculation, especially after you remove the impact of provision pricing, it seemed like realized pricing there was a little bit lower than I would have expected based on where the market was. So, I was wondering if you could talk a little bit about some of the pricing dynamics that are happening there with copper? And if there are any issues around quality?

Peter?

I have to check that, but --. We have a copper realized price; effectively, it's down. And part of it is because of the price adjustment in provision pricing from the last quarter. I would have to check deeper. I don't know if Luciano can help me, but I think mostly it's because of the [payables] and of some new contracts, but mostly it's because of the adjustment of the provision pricing from the previous quarter.

We can, after the call, update the webcast presentation to include a slide on this matter, explaining these variances.

John Tumazos, John Tumazos Independent Research.

With your various depot and blending locations overseas, ships on the water, port, ore in transportation, storage at mine sites, what is the maximum capacity in tons for your iron ore inventory?

We believe that this extended enterprise -- because we have operations [in mine], Malaysia. We have ships that we sent that we will sell afterwards. On average, we have around 10 million tonnes on this volume, and we believe we will continue to have it in the future.

But we tended not to increase our total volumes. The idea is to move inventories that we have in our mines, in our ports, in Brazil nearby customers. So we are only moving from one side to another, to make it closer to the customer and to make it more liquid.

So, that's the idea. But [the whole of it all], you can consider around 10 million tonnes of volume, it will be always in transit from Brazil to Asia.

Marcelo Aguiar, Goldman Sachs.

Getting back to the inventory situation of iron ore, Martins, just to be clear, of the 9 million tonnes you guys spoke about, 3 million you already have done. So, the other 6 million you expect to sell during the fourth quarter? And then, talking about the [Pico Fabrica, the highway there], you have 20 million tonnes of ore. How long do you think this will be fully sold to the market? This is my first question.

The [road] capacity is around 10 million tonnes per year. So, roughly speaking, you take two years to eliminate all those inventories and ship through southeast system.

And about the 9 million tons, we have 3.5 --.

For the 9 million tonnes that we report as inventory, increased -- 3 million tons were in the mines because it was not transported because of the interruption of Carajas. Another 3 million tonnes was sales that was already done in China but the documents were not able to be considered as sale in the same quarter. And the remaining 3 million tonnes were mainly in Malaysia.

So, those are the figures that we had in the beginning of this quarter. And a bigger part of it will be completely eliminated during the fourth quarter.

Ivano Westin, Credit Suisse.

You have guided the market in your last New York Day total production based on your own production and acquisitions from [general miners]. The forward curve tells us a price at (inaudible) for 2015, which is a [certain] level for some smaller producers. I'm just wondering if there is any threshold in terms of market price which would bring down your estimates of acquisitions from [general miners]. That's the first question.

And the second one, appreciate if you could comment on your expectations of the timeline for voting and approval of the new mining code in Brazil?

As far as our volumes that we presented last year in New York, we continue to operating in direction to have these volumes done this year. We don't have any change in our forecast. The same for next year.

And as far as the ore that we buy from third parties, the price mechanism we have with them is price-less. We come from the price of the market and then we bring it down to the mine cost. So, the price is automatically adjusted according to the price of iron ore in the international market.

So, as long as these miners are able to supply this ore to us at those prices, we don't intend to reduce it. So, it's a question of their capacity to sell their ore at lower prices. So, I think I don't have a good answer for you, but we intended to continue to buy as long as they are able to sell to us, even at lower price.

Regarding the new mining law, I think that we have just November to be approval under the committee. Otherwise, we must wait for the next year with the new Congressmen acting in order to approval in the Committee. But later on, (technical difficulty), the upper house and the lower house. I consider that they needed almost the range of four to six months to complete the whole process, in face of reaching a consensus in both houses.

Thank you very much for your questions, and I really appreciate most of the comments, and I would like to spend more time in this regard. I notice that you had some doubts about our sales, the volume of sales. It was something that we pursue based on the best interest of the Company. It's not regarding any problem to sell our material. And we hope that you see a big number in the last quarter of this year.

Thank you very much. All the best.

This concludes Vale's audio conference for today. Thank you very much for your participation. You may now disconnect.